- Make transaction assumptions: consideration (cash, debt, or equity), transaction fees, synergies, etc.
- Combine income statements of the acquirer and target
- Adjust income statement and shares outstanding accordingly to financing terms
- Add after-tax synergies
- Adjust for additional expenses (transaction fees)
- Add additional shares
- Subtract forgone interest on cash
- Subtract additional after-tax interest expense on debt
- Calculate earnings per share (EPS) by dividing combined net income by total post-merger shares outstanding of acquiring company
- Compare combined EPS with acquiror’s current EPS to determine if the deal is accretive (higher EPS) or dilutive (lower EPS)